Mechanisms for change2 Mechanisms to mobilize finance for the climate transition range from policy interventions to market-based measures, with hybrid public-private approaches offering a potent blend of the two. Concessional finance and incentives Offering capital at below-market rates or under more favourable conditions can mitigate investment risks and enhance the attractiveness of climate- related projects in EMDEs and LDCs. Doing so not only encourages private sector engagement in critical areas such as renewable energy and climate adaptation, but also ensures that essential initiatives can advance despite financial limitations. In practical terms, this involves extending low interest rates and longer repayment periods, thus making it more likely that conventional discounted cashflow analysis will yield competitive net present value estimates and internal rates of return for climate projects. By making projects more financially attractive, additional funding can be generated for climate-related initiatives. The strategic application of incentives such as tax breaks and subsidies can stimulate growth and innovation in sectors with significant climate impacts, including energy and transport. In this way, investments encouraged by the strategic application of concessions align with broader development goals, supporting economic growth while advancing environmental sustainability. Concessional finance lowers overall capital costs and mitigates financial risk. As a result, it is well- suited to advancing sustainability initiatives with long-term environmental and social benefits but requiring significant upfront investment. By providing more advantageous terms for climate projects than the market offers for competing alternatives, concessional finance directs timely capital into sectors vital for achieving sustainable development and climate resilience. 2.1 Strategic policy levers for effectively mobilizing transition finance Bridging the Gap: How to Finance the Net-Zero Transition 13

Bridging the Gap How to Finance the Net Zero Transition 2025